2019 (4) TMI 1879 - AT - Income Tax

Bogus purchases - Addition as estimated @25% - HELD THAT - Addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases, which Ld. first appellate authority has rightly done. However, keeping in view the fact that the assessee was dealing in low margin item like iron steel which was subjected to lower VAT Rate, we restrict the impugned additions to 5% of alleged bogus purchases. The impugned order stand modified to that extent.

Summary

Issues involved:
Cross-appeals for Assessment Years 2009-10, 2010-11, and 2011-12 contesting separate orders of the first appellate authority on common grounds of appeal regarding estimation of addition on account of alleged bogus purchases.

Analysis:
1. Cross Appeals for AY 2009-10:
- The revenue challenged the deletion of addition on account of bogus purchases, citing information from investigation authorities and hawala dealers' admission of not selling goods.
- The CIT(A) erred in estimating profit at 12.5% and not considering relevant legal precedents.
- The assessee challenged the initiation of reassessment proceedings, rejection of books of accounts, and addition of alleged bogus purchases.
- The AO made additions based on accommodation purchase bills and the assessee's failure to substantiate transactions.
- The CIT(A) reduced the estimated additions to 12.5% and justified the purchases based on banking transactions and stock movements.
- The Tribunal modified the additions to 5% considering the nature of the business and lower VAT rates, dismissing the revenue's appeal and partly allowing the assessee's appeal.

2. Cross Appeals for AYs 2010-11 & 2011-12:
- The facts for these years were similar to AY 2009-10, leading to identical grounds of appeal.
- The Tribunal's decision for AY 2009-10 applied mutatis-mutandis to these years, resulting in the dismissal of the revenue's appeal and partial allowance of the assessee's appeal.

Conclusion:
All three appeals by the revenue were dismissed, while the assessee's appeals were partly allowed, with the Tribunal's decision providing detailed reasoning and modifications to the additions made on account of alleged bogus purchases across the assessment years.